The Best Way to Invest Small Amounts of Money

by Chris Joseph

There are a number of good investment options that don't require a lot of money.

If you're not independently wealthy and don't want to subsist on a diet of saltines and cat food in your senior years, you probably should consider starting some form of investment program. Of course, things like a mortgage, car payments and a new baby on the way can limit your potential investment dollars. Fortunately, there are a variety of excellent investment options that require little in the way of start-up funds or continuing contributions.

401(k) Plan

If your employer offers a 401(k) plan for retirement savings, jump on it with both feet and any other appendages you can spare. With a 401(k), you can have a small amount of money automatically deducted from each paycheck, which is invested in funds of your choosing that earn tax-deferred interest. The money is deducted on a pre-tax basis, which can reduce the amount of taxes you owe each year. In many cases, your employer will match the amount you invest up to a certain percentage.

Roth IRA

A Roth IRA is an after-tax retirement vehicle, meaning you're investing money that you've already earned and paid taxes on. The beauty of the Roth is that your earnings will grow on a tax-free basis and you won't pay taxes when you begin to withdraw money at retirement. In some cases, you can open a Roth IRA for as little as $50 and contribute as little as $25 per month, depending on your investment firm.

Mutual Funds

Mutual funds pool the money of a multitude of investors and spread it over a variety of investment vehicles, minimizing your risk. You can choose funds that invest in instruments like stocks, bonds and money market accounts. Companies like T. Rowe Price, Scudder and TIAA-CREF will allow you to open a fund account for as little as $50 if you agree to set up an automatic investment plan where money is deducted from your bank account each month.

Buying Stocks Directly

You can also invest in the stock market with little money and without having to pay brokerage fees. Companies like Coca-Cola and Disney allow you to purchase stocks directly from the company. According to the Kiplinger website, Disney will allow you to invest as little as $100 per month through automatic investment. You could also consider joining a low-cost investment plan like the one offered by the National Association of Investors Corp. (NAIC), which gives you access to buying stocks directly when you pay a small membership fee.